2005 PLP 2577 (PTD)

NASIM SIKANDAR, J.

This reference application under section 136(2) of the Income Tax Ordinance by a Private Limited Company claims that following questions of law arise out of the impugned order of the Tribunal dated 16-7-2002. (a) "Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in treating Rs.8.6 million as loan and not as equity investment with the appellant? (b) Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in ignoring the pith and substance of the transaction? (c) Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in ignoring admitted evidence that the amount of Rs.8.6 million was not a cash receipt but an asset acquired for the appellant? (d) Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in interpreting the statute in situations equally placed by applying outside dividing tax line on the appellant? (e) Whether on facts and circumstances, the learned Income Tax Appellate Tribunal was justified in ignoring the superior judicial pronouncements to place interpretation beneficial in equal placed situations to the assessee? (f) Whether on facts and circumstances of the case, the learned Income Tax. Appellate Tribunal was justified in treating investment in equity as loan advanced in spite of non-fulfilling conditions of loan received and claimed to have been advanced as loan? (g) Whether on facts and circumstances, the learned Income Tax Appellate Tribunal was justified in alleging that not filing of Form III in time with the Registrar Joint Stock Companies by the appellant changes the character and nature of investment as made by the promoter director with the appellant as to acquire with the appellant? (h) Whether on facts and circumstances, the learned Income Tax Appellate Tribunal was justified in ignoring the treatment of transaction as shown by the promoter director and accepted by the tax department in wealth tax proceedings as equity and not loan advanced to appellant? (i) Whether on facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in alleging on hearings as provided in the balance sheet "loans and advances" to be a loan received by the appellant? (j) Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal has followed the right course by deciding on presumptions than considering the facts obtaining on record? (k) Whether on facts and circumstances of the case, the learned Income Tax Appellate Tribunal has suppressed mischief and has advance remedy by considering the facts obtaining on record?"

2. Earlier the prayer of the assessee for a reference of these questions to this Court under section 136(1) of the late Ordinance was refused by a Division Bench of the Tribunal on 21-10-2002.

3. According to the statement of the case the assessee Company was incorporated at Lahore as a Private Limited Company to manufacture paper and board products. While making assessing for the period ending on 31-12-1993 under section 62 of the late Ordinance, the Assessing Officer Company Zone-I made an addition of Rs.8.6 million under section 12(18) read with section 30 of the Ordinance on 29-3-1994. Earlier he observed that in the original balance sheet an amount of Rs.86 lac was shown as loan to the Company from one of its directors Mr. Qamar-uz-Zaman but in the revised balance sheet that amount was shown as share deposit money advanced by the said director. It was also observed that the aforesaid director purchased factory land from his own resources and paid the price directly to the owners/sellers of the land.

4. The Assessing Officer rejected the revised return and made the impugned addition by relying upon the earlier balance sheet. The assessee succeeded before CIT (Appeals), Lahore. By way of his order dated 10-10-1994 he observed that the late director of the company paid the amount for purchase of land which was subsequently treated by the company as share money to be contributed to paid up capital and also issued shares to him. Therefore, the treatment of that sum as income of the company by invoking provisions of section 12(18) of the late Ordinance was not justified. It was accordingly directed to be deleted.

5. On the departmental appeal a Division Bench of the Tribunal thought it otherwise. In the view of the learned members the late Ordinance did not contemplate revising of balance sheet. Also that the balance sheet was revised after the death of late director and, therefore, it could not be accepted as indicator of the factual position. In their view the allotment of shares to late director Mr. Qamar-uz-Zaman was of no consequence inasmuch as on 31-12-1992 he held shares of the value of Rs.3.5 million only and therefore, the revision of balance sheet after his death was an afterthought contrived solely to evade tax liability under section 12(18) 30 of the late Ordinance. In that regard the learned members also took into consideration the filing of Form III with the Registrar Companies on 16-3-1994 i.e. after the Assessing Officer required a copy. of the same during course of assessment proceedings. Learned members of the Tribunal further disagreed that the ratio settled in our judgment in re: Messrs Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others (2001) (83) Tax 541 = 2001 PTD 1180 attracted to the facts in hand.

6. Learned counsel for the Revenue supports the reasons and rationale of the impugned order.

7. Having heard the learned counsel for the parties we are persuaded to hold that the learned members of the Tribunal were not correct in observing that the ratio settled in the aforesaid judgment of this Court was not attracted to the facts in hand before them. Almost all aspects of the facts stated by them in their order were earlier considered and disposed of by us in the said judgment Messrs Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore and 2 others (supra). That judgment was subsequently maintained by the Hon'ble Supreme Court of Pakistan in re: Inspecting Additional Commissioner of Income- tax and others v. Messrs Micropak (Pvt.) Ltd. and others 2002 PTD

877. The opinion of the learned members expressed more than once that the assessee/company tried to evade a tax liability of the aforesaid amount is also not acceptable both factually as well as legally. The deeming) provisions of section 12(18) of the late Ordinance as observed by us in the said judgment were meant only to discourage fictitious loans. In the case in hand as a matter of fact the disputed amount never reached the coffer of the company as it was directly paid to the sellers of the land purchased in the name of the company. The mentioning of that amount as B loan in the first balance sheet was not a mistake which could not be corrected. A wrong entry in the books of accounts or an inadvertence on the part of the accountant of the company could not be taken that far to hold the company liable to pay tax on deemed income before it had even started its business. The Commissioner (Appeals) was correct in observing that the treatment meted out to the assessee by the Assessing Officer was ill-founded, misconceived and wrong assumption of facts C and application of section 12(18) of the late Ordinance. We will also agree with him that there was no legal bar against revision of return D before the completion of the assessment proceedings. The balance sheet being an integral and important part of the return filed by the assessee, its revision was wrongly disapproved by the learned members of the Tribunal. An error in an entry of books of accounts or an inadvertent E declaration made by the assessee can very well be rectified and corrected) before the framing of assessment. The issuance of share capital in favour of the late director even at the belated stage could not be outrightly rejected on account of its allegedly being an afterthought. The share capital having been issued before the framing of assessment, the intention of the company could not be scrutinized on the touchstone of maximum recovery for the revenue. It is all the moreso, when both on Income Tax as well as on Wealth Tax side the late director was shown to be the owner of the shares of the equivalent amount and had paid tax thereupon. It will be noted that it has never been nor it could possibly be the case of the revenue that the aforesaid amount added under section 12(18) of the late Ordinance originated from sources not disclosed to the revenue.

8. For the various other reasons given in our judgment in re: Messrs Micropak (Pvt.) Ltd., Lahore v. Income Tax Appellate H Tribunal, Lahore and 2 others (supra) we will return a negative answer to question (a), (c) (g) and (h) as reproduced above. Rest of the questions are not needed to be answered.

9. Disposed of. S.A.K./Z-120/L Order accordingly.